Fab failure

Fab

Online design marketplace

Description

Fab is a former e-commerce company which started out as a dating site. On June 9, 2011, the owners of the site decided to entirely focus on sales and daily design inspiration. The company grew so rapidly that it even surpassed Facebook’s record when it was able to reach the 1 million subscribers milestone within six months. The company grew their sales and exposure, even more when they introduced a social-concept similar to Facebook which enabled users to share the purchases they made on Fab.com on an interface called “Inspiration wall”. By early 2012, the company had already been considered so well established that its employees even described the workplace environment to be quite similar to that of people working for Google, the largest Web browsing company in the world.

Stats

Category
e-Commerce
Country
United States
Started
In 2009
Closed
By 2013
Number of Founders
Five
Name of Founders
Bradford Shane Shellhammer, Deepa Shah, Jason Goldberg, Nishith Shah, Sunil Khedar
Number of Employees
Between 501 And 1000
Number of Funding Rounds
11
Total Funding Amount
$336.3M
Number of Investors
34
Precise Cause of Failure
Multiple Reasons
Business Outcome
Acquired

Cause of Failure

Fab’s success echoed around the world, resulting in companies launching their own same exact replicas of Fab’s platform, including the Samwer brothers, who are known for launching replicas of thriving American businesses abroad like ebay, Amazon, etc. This news troubled Fab’s CEO. Jason Goldberg. To secure sales in the European region, Fab’s CEO insisted on acquiring three new startups in the region. The move to prematurely expand to Europe ultimately costed Fab over $60-$100 million dollars in capital.

A former Fab employee said that the decision to move towards Europe would’ve been fantastic if it had been done in a subsequent period, after the company became fully established in the U.S. The expansion led to serious funding issues inside the board.

Furthermore, in an attempt to solve the slow delivery rate to their customers, Fab decided to buy their own warehouse in New Jersey. This solution was initially successful as the delivery time went down from 16.5 days to only 5.5 days.  This became the perfect opportunity for Fab to exponentially grow their product inventory. Sales rose up rapidly but what the company didn’t immediately seem to realize was that by scaling up their inventory, they would lose their competitive edge for which they were known for, “providing personal and intimate designs”. The company focused too much of the funds on several initial marketing campaigns which led people into buying an initial product but didn’t help in developing customer purchase patterns they could rely on. The plan on expanding their product inventory backfired as customers realized that they could find the same products for a cheaper price and a faster delivery on Amazon. Customers left Fab in exchange for a better service from Amazon.

In the middle of 2014, CEO Jason Goldberg concluded that it was better to sell the remaining parts of Fab to a prospective company.  In the end, the $1-billion-dollar worth company was sold to PCH Innovations for only $15 million dollars.

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